Top Four New Deductions for 2025 

 

Additional Deduction for Seniors: 


Overview of the deduction 


  • Effective 2025 through 2028, individuals age 65 and older may claim an additional $6,000 deduction. 
  • This is in addition to the standard deduction for seniors available under existing law. 
  • Applies per eligible individual (or $12,000 for a married couple if both spouses qualify). 
  • Phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers). 


Who qualifies 


  • You must be age 65 on or before the last day of the tax year. 
  • Available for eligible taxpayers (both itemizing and non-itemizing). 


No Tax on Tips: 


Overview of the deduction 


  • Effective 2025 through 2028, employees and self-employed individuals may deduct qualified tips they received in occupations the IRS identified as “customarily and regularly receiving tips” on or before December 31, 2024, and are reported on a Form W-2, Form 1099, another statement furnished to the individual, or on Form 4137 if the individual directly reports the tips. 
  • “Qualified tips” include voluntary cash or charged tips received from customers, including shared tips. 
  • Maximum annual deduction is $25,000. 
  • For self-employed individuals, deduction cannot exceed net income (before this deduction) from the trade or business where tips were earned. 
  • Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). 


No Tax on Overtime:  


Overview of the deduction 

  • Effective 2025 through 2028, individuals may deduct the portion of qualified overtime pay that exceeds their regular rate of pay (for example, the “half” portion of “time-and-a-half”). 
  • Overtime must be reported on Form W-2, Form 1099, another statement furnished to the individual, or directly by the individual. (Provide a last paystub if employer doesn’t report it on W2 or other means.) 
  • Maximum annual deduction is $12,500 ($25,000 for joint filers). 
  • Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). 

 


No Tax on Car Loan Interest:  


Overview of the new deduction 


  • Effective 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle for personal use that meets other eligibility criteria. Lease payments do not qualify. 
  • Maximum annual deduction is $10,000. 
  • Phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers). 


What counts as qualified interest 


Interest must be paid on a loan that: 


  • Originated after December 31, 2024 
  • Was used to purchase a vehicle originally used by the taxpayer (not a used vehicle) 
  • Was secured by a lien on the vehicle 
  • Was for a personal-use (nonbusiness) vehicle 

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction. 


​​​What counts as a qualified vehicle 


A qualified vehicle is a car, minivan, van, SUV, pickup truck or motorcycle that: 


  • Has a gross vehicle weight rating of less than 14,000 pounds 
  • Underwent final assembly in the United States. 


To verify final assembly, check one of these: 



Who qualifies 


  • Available to both itemizing and non-itemizing taxpayers. 
  • You must include the VIN on your return for any year you claim the deduction. 


Reporting requirements 


  • Lenders or other recipients of qualified interest must file information returns with the IRS and provide statements to taxpayers showing the total amount of interest received during the taxable year.